Physical Work Cost Scenarios

Conditional Budgets and Actual Payments

Financial-method scope reviewed 2026-10-07: define a deficiency, scope, payer, observation date and payment timeline before weighting costs. A scenario budget is not automatically an expected cash payment: contingencies may be unspent allowances, and a known required repair can still have uncertain scope, cost and timing. Engineering findings and actual legal/contractual obligations require their own evidence.

For one stated budget screen with probability p of undertaking the work:

Weighted Scenario Budget =
  p × (Conditional Scope Cost × Conditional Inflation Factor + Conditional Allowance)
+ Unconditional Budget Item

Require 0 ≤ p ≤ 1; the costs/factor inside the bracket apply to the work-occurs case. A work-dependent allowance belongs inside that case, while an independently payable item belongs outside. Distinguish an allowance from an estimated actual payment and avoid duplicating contingency already embedded in the scope. The prior unqualified addition of contingency outside the probability product would instead assume it applies even when the work is not undertaken. If scope, inflation or timing varies across outcomes, model the outcomes together; multiplying separate averages need not equal the expected product.

For actual cash analysis, follow the shared scenario conventions on the relevant physical-work timeline:

Expected Incremental Net Cure Payment_t =
  sum(p_s × (Incremental Actual Cost_s,t − Collectible Recovery_s,t))

Use mutually exclusive, exhaustive paths with nonnegative probabilities summing to one. Include a no-work path when admissible; a known required obligation belongs in every applicable path rather than being weighted away. Repair, overlay and replacement may be alternatives only when each path captures the complete work sequence; if repair precedes replacement, include both in that path rather than treating them as independent substitutes. Recoveries must have collectible payer/timing support. Probabilities are evidence-based estimates or explicit teaching assumptions, never inferred merely from missing diligence.

Curator arithmetic only: assume p=40%, conditional scope 100K, conditional inflation 1.10, a 10K allowance only if work occurs, and a separate unconditional 5K item. Weighted budget is 48K+5K=53K; this does not predict allowance spending. Separately assume the same 53K represents estimated actual net cash paid at year-end 1 and a matching 8% annual discount rate: PV≈49,074.07. A separate roof choice assumes probabilities 10% no work / 30% repair / 20% overlay / 40% replacement, with full path costs 0/20K/80K/200K at one date; expected cost is 102K. These are distinct hypothetical scenarios, not roof-condition findings, quotes or assessed failure rates.

Expected totals can be added across non-overlapping components without assuming independence; that arithmetic does not establish a portfolio loss distribution, tail reserve or liquidity sufficiency. Use joint scenarios to evaluate correlated tails and reconcile overlapping mobilization, downtime or contingencies. Use Physical Risk Value Scenarios and Incremental Capital Project Returns for cash timing, funding and valuation; do not deduct this weighted budget again from a value already incorporating the same payments. Existing Source: Debt Yield Scope Review 2026 supports cash/NOI, normal/stressed projections and valuation distinctions, not an OCC-prescribed probability or engineering-cost formula. Source: Lease Weighting and Rollover Scope Review 2026 records the shared curator scenario conventions; physical-work application here is curator synthesis.

Related Methods and Evidence

Keep each cost view explicit. A weighted budget does not establish actual spending, a project's value or sufficient cash for every path. The same work can appear in several views, but it enters each selected total only once.

As of the 2026-10-17 ownership review, the budget, discount and roof examples above remain explicit teaching assumptions. They are not observed construction costs, failure probabilities, reserve requirements or recommendations to perform work.

Sources

• Source: Debt Yield Scope Review 2026 — retained OCC support for supported capital/income projections, normal/stressed analysis, income/cash and direct-cap/DCF distinctions. The conditional-cost equations and examples are curator derivations.
• Source: Lease Weighting and Rollover Scope Review 2026 — retained curator conventions for complete outcome paths and separate expected quantities. Applying them to physical work does not transfer an issuer's lease disclosure into engineering evidence.